“Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well,” said Kim Clark, president of Martell Company. “Our $18,300 overall manufacturing cost variance is only 1.2% of the $1,525,000 standard cost of products made during the year. That’s well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year.”
The company produces and sells a single product. The standard cost card for the product follows:
Inputs | (1) Standard Quantity or Hours |
(2) Standard Price or Rate |
Standard Cost (1) × (2) |
||||
Direct materials | 2 feet | $ | 8.45 | per foot | $ | 16.90 | |
Direct labor | 1.4 hours | $ | 16 | per hour | 22.40 | ||
Variable overhead | 1.4 hours | $ | 2.50 | per hour | 3.50 | ||
Fixed overhead | 1.4 hours | $ | 6 | per hour | 8.40 | ||
Total standard cost per unit | $ | 51.20 | |||||
The following additional information is available for the year just completed:
Denominator activity level (direct labor-hours) | 35,000 | |
Budgeted fixed overhead costs | $ | 210,000 |
Actual variable overhead costs incurred | $ | 108,000 |
Actual fixed overhead costs incurred | $ | 211,800 |
Required:
1. Compute the materials price and quantity variances for the year.
2. Compute the labor rate and efficiency variances for the year.
3. For manufacturing overhead compute:
a. The variable overhead rate and efficiency variances for the year.
b. The fixed overhead budget and volume variances for the year.
(For all requirements, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
Answer
Actual DATA for |
30000 |
units |
|
Quantity (AQ) |
Rate (AR) |
Actual Cost |
|
Direct Material |
64000 |
$ 8.55 |
$ 547,200.00 |
Direct labor |
43500 |
$ 15.80 |
$ 687,300.00 |
Variable Overhead |
43500 |
$ 2.48 |
$ 108,000.00 |
Standard DATA for |
30000 |
units |
|
Quantity (SQ) |
Rate (SR) |
Standard Cost |
|
[A] |
[B] |
[A x B] |
|
Direct Material |
( 2 feet x 30000 units)=60000 feet |
$ 8.45 |
$ 507,000.00 |
Direct labor |
( 1.4 hours x 30000 units)=42000 hours |
$ 16.00 |
$ 672,000.00 |
Variable Overhead |
( 1.4 hours x 30000 units)=42000 hours |
$ 2.50 |
$ 105,000.00 |
Hrs |
Rate |
Amount |
|
Budgeted Fixed Overhead |
35000 |
$ 6.00 |
$ 210,000.00 |
Standard Fixed Overhead or Fixed Overhead absorbed |
42000 |
$ 6.00 |
$ 252,000.00 |
Actual Fixed Overhead incurred |
43500 |
4.868965517 |
$ 211,800.00 |
Material Price Variance |
||||||
( |
Standard Rate |
- |
Actual Rate |
) |
x |
Actual Quantity |
( |
$ 8.45 |
- |
$ 8.55 |
) |
x |
64000 |
-6400 |
||||||
Variance |
$ 6,400.00 |
Unfavourable-U |
||||
Material Quantity Variance |
||||||
( |
Standard Quantity |
- |
Actual Quantity |
) |
x |
Standard Rate |
( |
60000 |
- |
64000 |
) |
x |
$ 8.45 |
-33800 |
||||||
Variance |
$ 33,800.00 |
Unfavourable-U |
Labor Rate Variance |
||||||
( |
Standard Rate |
- |
Actual Rate |
) |
x |
Actual Labor Hours |
( |
$ 16.00 |
- |
$ 15.80 |
) |
x |
43500 |
8700 |
||||||
Variance |
$ 8,700.00 |
Favourable-F |
||||
Labour Efficiency Variance |
||||||
( |
Standard Hours |
- |
Actual Hours |
) |
x |
Standard Rate |
( |
42000 |
- |
43500 |
) |
x |
$ 16.00 |
-24000 |
||||||
Variance |
$ 24,000.00 |
Unfavourable-U |
Variable Overhead Rate Variance |
||||||
( |
Standard Rate |
- |
Actual Rate |
) |
x |
Actual Labor Hours |
( |
$ 2.50 |
- |
$ 2.48 |
) |
x |
43500 |
750 |
||||||
Variance |
$ 750.00 |
Favourable-F |
||||
Variable Overhead Efficiency Variance |
||||||
( |
Standard Hours |
- |
Actual Hours |
) |
x |
Standard Rate |
( |
42000 |
- |
43500 |
) |
x |
$ 2.50 |
-3750 |
||||||
Variance |
$ 3,750.00 |
Unfavourable-U |
Fixed Overhead Production Budget Variance |
||||||
( |
Budgeted Fixed Overhead |
- |
Actual Fixed Overhead incurred |
) |
||
( |
$ 210,000.00 |
- |
$ 211,800.00 |
) |
||
-1800 |
||||||
Variance |
$ 1,800.00 |
Unfavourable-U |
Fixed Overhead Production Volume Variance |
||||||
( |
Standard Fixed Overhead or Fixed Overhead absorbed |
- |
Budgeted Fixed Overhead |
) |
||
( |
$ 252,000.00 |
- |
$ 210,000.00 |
) |
||
42000 |
||||||
Variance |
$ 42,000.00 |
Favourable-F |
“Wonderful! Not only did our salespeople do a good job in meeting the sales budget this...
“Wonderful! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well,” said Kim Clark, president of Martell Company. “Our $18,300 overall manufacturing cost variance is only 1.2% of the $1,525,000 standard cost of products made during the year. That’s well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus...
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